Hospital groups worry as more drugmakers limit 340B discounts

Maya Goldman / March 25, 2022

UW Medicine is getting nervous about the future of its 340B discounts as more drug manufacturers restrict discounts for drugs dispensed at contract pharmacies.

"We're seeing our savings be eroded dramatically," said Sumona DasGupta, assistant director of pharmacy audit and compliance. UW Medicine, which operates two 340B hospitals, has lost about two-thirds of its contract pharmacy savings, she said.

Safety-net providers across the country expect more lost savings from drugmaker restrictions on 340B discounts to contract pharmacies, as sixteen drugmakers have announced plans to limit the discounts since summer 2020, despite ongoing lawsuits.

Johnson & Johnson, one of the world's largest pharmaceutical companies, became the latest drugmaker to restrict 340B discounts for safety-net hospitals that partner with contract pharmacies on Monday. The policy will go into effect May 2.

"It's really becoming a point now where Sumona tells me, 'It's Friday, which company is going to be added to the list?'" Steve Fijalka, UW Medicine's chief pharmacy officer, said.

Johnson & Johnson, like other drug companies, said in its March 21 letter that the restrictions are necessary to reduce drug diversion and inappropriate discount and rebate claims. The Government Accountability Office issued a report in 2018 saying federal oversight of contract pharmacies needed improvement.

"We are committed to the 340B Program as it was originally intended, however as the program has grown exponentially in recent years, we believe steps must be taken to reduce duplicate discounts and diversion in the system in order to ensure its long-term sustainability," Katie Upton, Janssen public affairs and access communications leader, said in an email.

But hospitals and other covered safety-net providers maintain the discounts are in line with the law and necessary to keep up patients' access to drugs while the providers operate on thin margins. Discounts on drugs dispensed at contract pharmacies make up a quarter of overall 340B savings for hospitals, and more than 50% of savings for critical-access hospitals.

A survey conducted in late 2021 by lobbying organization 340B Health found that larger, urban 340B hospitals had lost 23% of their community pharmacy savings as a result of the drug company restrictions. Ten percent of these hospitals reported losing $9 million or more. Critical-access hospitals report losing 39% of savings on average.

Now that the number of companies restricting discounts has doubled, the overall impact is likely "much, much larger," said Maureen Testoni, 340B Health's CEO and president.

"Our hospitals have been very concerned about this for a long time, since the beginning, obviously, but we started to hear towards the end of last year real panic from a number of our members, with the companies that were starting to announce that they were going to be going in the same direction," Testoni said.

The federal 340B program requires pharmaceutical companies participating in Medicaid or Medicare to discount products for safety-net providers. But in 2020, companies began limiting discounts on outpatient drugs, including by prohibiting hospitals from using the discount at multiple contract pharmacies or requiring entities to submit significant data in order to receive discounts. Some drugmakers imposed restrictions on community health centers and other 340B entities as well.

HHS said in late 2020 that manufacturers must offer covered drugs at no more than the 340B price, even if a hospital or other 340B entity uses contract pharmacies to distribute drugs. HHS' Health Resources and Services Agency began sending letters to manufacturers last year, saying their policies went against the 340B statute and could be subject to fines.

Manufacturers sued HHS, and federal judges are split on whether the agency acted within its bounds. Both the government and manufacturers have appealed the decisions.

The effect of these discounts isn't just getting worse because more companies are imposing limits, Testoni said. It's also due to the specific drugs they're restricting. Manufacturers are increasingly limiting 340B discounts for specialty drugs that may only be dispensed at contract pharmacies.

"Some of these medications we're not even able to give them our own," UW's DasGupta said. "Patients are getting their medications, but we don't have any 340B benefits to be able to help coordinate that care, or in cases where patients may have uncompensated care, we're evaluating where our abilities are to be sure that we can continue providing that."

The loss of hospital savings may also trickle down to patient care, said Shahid Zaman, policy manager at America's Essential Hospitals. Contract pharmacies help hospitals expand access, since some patients can't travel to a hospital's in-house pharmacy to pick up their prescriptions, he said.

Plus, member hospitals have used 340B savings to fund health services like trauma, oncology and stroke care; medication management; sexual assault response teams and more. The administrative difficulties of navigating different 340B discount restrictions are grating on hospitals too, Zaman said.

Five manufacturers have restricted discounts to community health centers as well as hospitals, per 340B Health. Drugmaker Gilead most recently announced that it will limit discounts for its popular hepatitis C drugs starting May 2 by requiring claims level data for prescriptions dispensed at contract pharmacies.

"Sharing of claims level data with manufacturers is a necessary step toward achieving greater transparency in the 340B program and will help Gilead address duplicate discounts and diversion while also bolstering the integrity and sustainability of the program," the company's March 15 notice said.

Mary Elizabeth Marr, CEO of Thrive Alabama, said it's difficult to quantify how much her community health center will lose in savings because of Gilead's announcement but that the action represents a "slippery slope."

"We've built sustainable programs around having this money. If the money went away, we literally would cease to exist," Marr said.